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The effect of information on market activity; evidence from vehicle recalls

Author

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  • van den Bijgaart, Inge

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Cerruti, Davide

    (Centre for Energy Policy and Economics, ETH Zürich)

Abstract

We evaluate the effect of vehicle recalls on vehicle transactions in the second-hand market. Using a rich dataset of Dutch vehicle registrations, we exploit the quasi-experimental variation in recalls across nearly-identical cars. We find strong heterogeneities across market segment:vehicles with a lower (higher) list price or some (zero) defects experience an increase (decrease) in transactions after a recall. Based on our theoretical model, this suggests that recalls increase sorting in low-end markets, yet exacerbate adverse selection in high-end markets. Our results shed light on the effect of information arrival in markets subject to uncertainty and information asymmetries.

Suggested Citation

  • van den Bijgaart, Inge & Cerruti, Davide, 2020. "The effect of information on market activity; evidence from vehicle recalls," Working Papers in Economics 792, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0792
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    Cited by:

    1. Cerruti, Davide & Daminato, Claudio & Filippini, Massimo, 2023. "The impact of policy awareness: Evidence from vehicle choices response to fiscal incentives," Journal of Public Economics, Elsevier, vol. 226(C).

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    More about this item

    Keywords

    Vehicles; recalls; adverse selection; sorting: information;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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